If you are looking for an extra few hundred dollars to make a down payment on a new car or are facing some unanticipated medical bills, if the opportunity is available, borrowing from family is a great option. Many Americans select this avenue all the time. In fact, peer-to-peer lending is an estimated $75 billion/year industry. If you are deciding about lending to or borrowing from someone close to you, the most important thing to do prior is think about the long-term effects it will have your relationship. It is also very important that you outline the key terms and principles of the financing in writing.  You should also think about obtaining some professional input in the event that the loan amount is considerable.

Why are family loans so enticing?
- very likely that you will not be required to back your loan with security
- interest is either very low, or does not exist
- flexible terms
- person you are borrowing from will likely not request any sort of plan as to what your agenda is with the money

It is extremely opportune to obtain a family loan. But, if the situation goes bad, relationships are usually effected adversely as well. It should not matter if your parents or sibling are your lender, you should still take care of the loan just as seriously as if you were borrowing from a bank.

Never put your financial well-being or future in harms way. A good rule of thumb is to never lend an amount that is greater than what you can afford to not get back. It is perfectly fine to tell the person requesting your help 'no'. Issuing a refusal now will be simpler to deal with than any potential future payment issues. Learn more about lending family money.

Establish interest
Specific types of person-to-person loans do have tax implications. A good idea would be to communicate with your accountant and determine what your requirements will be for your specific situation. Usually, neither party will have any tax implications for a loan amount of $10,000 or less. However, you may be obligated to charge an interest on loans that are greater than $10,000. Lenders must declare interest as a taxable income for any loan that does have interest associated with it, no matter how low the amount. In the event that the borrower is utilizing the loan for business, they can typically subtract the interest when determining what their profits are.

Develop a written contract
You won't need a formal legal agreement for any loan amount, but it is important that they key terms for your loan are established in writing in the form of a promissory note. For example:

- explanation of what the funds are being using for
- the repayment schedule, including specific dates, interest and amounts. Use a computer program like Microsoft Excel so that these terms are easy to read and understand.
- some sort of plan on how to deal with any issues or problems if the occur

In the event of a dispute, these documents offer protection for all parties involved from any effort of misrepresenting the original, agreed upon terms. And for income tax purposes, if the person borrowing is not able to pay back their debt, this contract will help the lender write off the debt as non-business bad debt. If you want a more formal contract, consider having an attorney write one up for you.

Communicate with an expert
If the amount being borrowed is of a significant amount,  or it is going to be utilized for a perilous business venture, it would be a smart idea to receive counsel from your lawyer or accountant. You can visit the forums of Legal Help. There you can post a question and get a response from a qualified attorney. It is very likely you will be able to have an attorney write-up an agreement for you for a small fee. Or you can even use software like Family Lawyer 2004 for the purpose of putting together an agreement for your loan.

10 Reasons Not to Lend to Friends
Helping Without Giving Money/Loans
Paying Taxes On Personal Loan Interest You Receive When Lending Money to Friends or Family






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